Execs: Digital Music Future Still Unclear

New York — Executives in the music, Internet and technology industries agreed during a conference here that they are still experimenting with digital-music business models, but some key players strongly disagreed with some of the experiments undertaken to date.

During the sixth annual Digital Music Forum, Universal Music Group executive Larry Kenswil scolded the two satellite-radio broadcasters for launching time-shifting satellite-radio/MP3 players, which he called “cannibal machines.”

Also on Wednesday, XM senior VP Jon Zellner doubted that terrestrial radio stations that simulcast multiple digital programs will stem their listener declines, and Music Choice president David Del Beccaro warned of a consumer backlash if consumers are forced to pay multiple subscription fees to get the same content delivered to multiple platforms, such as PCs, set-top boxes, satellite radios and cellular phones.

At least one participant, leading an independent music label, even questioned the need for copy-controlled digital music downloads, although the consensus among music industry executives was that digital rights management (DRM) technology will enable multiple business models to bloom, including advertising-supported downloads whose price would be very low or perhaps free.

The harshest words hurled at the forum came from Kenswil, president of Universal’s eLabs new technology division. Kenswil, who also sits on the board of the Recording Industry Association of America (RIAA), called new satellite-radio/MP3 players “cannibal machines” that are “a great example of not caring if you lose a dollar as long as I make a penny.” The products let consumers store time-shifted satellite-delivered music for later recall by title, artist, or genre, and they were designed “to increase satellite subscriptions at the complete expense of the ability to sell music,” Kenswil charged.

In other remarks, however, Kenswil also said satellite radio, internet radio and other technologies have given the music industry “more ways of getting paid” and will help the industry make up for declining CD sales. He attributed falling CD sales to the format’s maturity. A sales decline is “usual for a format of that age,” he said.

Kenswil also called “portable device filling stations” a “huge market to be tapped.” These in-store kiosks would be like CD-burning kiosks, but a “massive technology development and investment must be done” to overcome interoperability problems created by the multiple music codecs and DRM technologies, he admitted.

He also said Universal is encouraging the development of “free downloads with advertising as part of that service.” He didn’t envision songs with ads attached, but suggested that free downloads would have more limited usage rights than paid-for downloads, thanks to DRM technology.” A world without DRM is a world with one business model,” he said.

During a later panel discussion, XM’s Jon Zellner didn’t respond directly to Kenswil’s comments, but the senior VP for music programming said satellite radio lets consumers hear songs “they haven’t heard in 20 years” as well as brand new songs, thus encouraging people to buy music. He pointed to XM’s partnership with Napster in the XM+Napster download service, which is targeted to users of XM/MP3 portables. Consumers mark time-shifted XM songs stored on their portable XM/MP3 player, plug it into a PC, and automatically download the marked songs to the PC for permanent use and for transfer to a portable device. XM songs captured over the air, in contrast, remain playable only as long as the user pays for an XM subscription.

While defending XM/MP3 players, Zellner questioned whether terrestrial radio’s conversion to digital and launch of commercial-free simulcast channels will help radio broadcasters’ compete in an era when so much satellite- and internet-radio content is competing for listener’s attention. “In a car,” he said, “the beauty of XM is that it’s just like a radio with a lot of channels.” HD Radio simulcasting, he contended, “is a little confusing” to consumers.

Zellner also contended that, with automakers already working on their 2012 models, “by that time, HD Radio will be too little, too late.” By that time, he added, “we’ll have a lot of subscribers.”

When one questioner asked how radio advertisers would feel about simulcast commercial-free channels potentially siphoning off listeners from commercial channels, CBS Radio programming president Rob Barnett pointed to MTV’s initial launch as a commercial-free cable channel and successful transition to a channel with commercials. HD Radio stations plan to offer commercial-free simulcasts “for two years, at least,” he said.

Motorola’s iRadio service lets users download content to a PC at night, transfer it to a connected cellphone, and play it back through the PC, through the cellphone’s stereo headset, or through a Bluetooth-equipped car stereo system. Like traditional analog radio, once the content is played it can’t be replayed. Songs can be tagged, however, for permanent paid-for downloading.

The “winner” in the digital music era, Smith contended, will be the one who delivers content multiple ways to multiple platforms.

In a preceding session, MusicChoice’s Del Beccaro outlined a similar vision. The company streams video on demand to PCs, set-top boxes and cellphones and streams music channels to cable and satellite-TV operators. “We’re working with two technologies that let you hear music in the house where you want – over the Internet, through the TV, etc, and when you tag it, it becomes available on a portable device, including portable media players, PlayStation Portables, car stereos and cellular phones.,” he said.

MusicChoice believes consumers should “use it [content] in whatever way they want ... for their own use, whether in the living room or portable device.” The technology to do that is available today, and MusicChoice is testing them, he said, but rights holders and other interests, including cellular carriers, are holding things back, he said. “The rights guys want to collect a second time,” he conceded, but that is the content industry’s “biggest danger.” He warned that “consumer backlash will be very severe” if consumers are forced to pay two or more times “for the same piece of content.” The result would be “a huge second coming of illegal P2P.”

“It’s okay to charge for different types of content,” however. Del Beccaro He cited one charge for a downloaded song, a separate charge for the ringtone version of that song, and separate charges for different versions of the same song.

For now, however, “the rights holders and [cellular] carriers want fences…but technology will break fences over the next couple of years.

Del Beccaro told TWICE that he will “probably roll out next year” a service that lets users port a video stream to a portable media player for later playback according to DRM rules that could range from unlimited portability to a 24-hour timeout.